Bailout fails to ease uncertainty over European growth
IRELAND's bailout may not be enough to prevent further problems in the eurozone, the Economic and Social Research Institute said in a report to be published today.
"It is hoped that the authorities' recent intervention in Ireland will prevent further contagion.
"Nonetheless, there remains considerable uncertainty which, if not resolved, could have a negative impact on the euro area economy," the ESRI said in a report carried out with sister organisations across Europe.
The think tanks predict economic growth inside the euro zone will slow next year to just 1.6pc, as austerity drives continue to bite, and then inch upwards to 1.7pc next year.
The eurozone escaped from its deepest recession in post-war history in the third quarter of last year.
Its relatively strong second-quarter growth of 1pc surprised markets but growth slowed to 0.4pc in the third quarter.
The think tanks' predictions for eurozone growth are far lower than the Government's predictions for growth here in Ireland. Finance Minister Brian Lenihan said on Wednesday in his four-year austerity plan that he expects growth here to average 2.75pc.
Rating agency Standard & Poor's yesterday dismissed the 2.75pc growth assumptions as too optimistic.
"The gradual weakening of the recovery seen in recent months is expected to continue into 2011 with a modest acceleration in growth anticipated in 2012 as conditions gradually improve," the think tanks add.
Interest rates are also seen rising from the present record low of 1pc. The European Central Bank will hike its main refinancing rate to 1.6pc by the end of 2012, the report forecasts.
Unemployment is expected to remain high over the next two years with the average euro zone unemployment rate projected to stand at 9.7pc in 2012.
Germany has powered Europe's recovery while other nations have failed to emerge from the slump as governments step up austerity measures to rein in budget deficits.
Economic growth across Europe "remains very unbalanced", said Chris Williamson, chief economist at Markit. "Growth outside of France and Germany appears to be stagnating at best."
While Germany's economy expanded 0.7pc in the third quarter, Spain's economy stalled and Greece shrank. Figures for Ireland's performance in the third quarter have not yet been published.